Hedge Funds Are Crazy About AEP Industries (AEPI): What’s Fueling The Craziness?

Hedge fund managers like David Einhorn, Dan Loeb, or Carl Icahn became billionaires through reaping large profits for their investors, which is why piggybacking their stock picks may provide us with significant returns as well. Many hedge funds, like Paul Singer’s Elliott Management, are pretty secretive, but we can still get some insights by analyzing their quarterly 13F filings. One of the most fertile grounds for large abnormal returns is hedge funds’ most popular small-cap picks, which are not so widely followed and often trade at a discount to their intrinsic value. In this article we will check out hedge fund activity in another small-cap stock: AEP Industries (NASDAQ:AEPI).

Is AEP Industries (NASDAQ:AEPI) a great investment now? Money managers are in an optimistic mood. The number of bullish hedge fund bets that are revealed through the 13F filings advanced by 1 lately. The level and the change in hedge fund popularity aren’t the only variables you need to analyze to decipher hedge funds’ perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That’s why at the end of this article we will examine companies such as Tsakos Energy Navigation Ltd. (NYSE:TNP), Western Asst High Incm Opprtnty Fnd Inc. (NYSE:HIO), and Winmark Corporation (NASDAQ:WINA) to gather more data points.

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Hedge fund activity in AEP Industries (NASDAQ:AEPI)

At the end of the third quarter, a total of 13 of the hedge funds tracked by Insider Monkey held long positions in this stock, a rise of 8% from the second quarter of 2016, which followed 2 volatile quarters of hedge fund ownership. By comparison, 12 hedge funds held shares or bullish call options in AEPI heading into this year. With hedgies’ capital changing hands, there exists an “upper tier” of noteworthy hedge fund managers who were boosting their stakes considerably (or already accumulated large positions).
According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, KSA Capital Management, led by Daniel Khoshaba, holds the number one position in AEP Industries (NASDAQ:AEPI). KSA Capital Management has a $71.2 million position in the stock, comprising 22.2% of its 13F portfolio. On KSA Capital Management’s heels is Renaissance Technologies, founded by Jim Simons, holding a $42 million position. Some other peers that hold long positions encompass Alec Litowitz and Ross Laser’s Magnetar Capital, Paul Marshall and Ian Wace’s Marshall Wace LLP, and John Overdeck and David Siegel’s Two Sigma Advisors. We should note that KSA Capital Management is among our list of the 100 best performing hedge funds which is based on the performance of their 13F long positions in non-microcap stocks.

With general bullishness amongst the heavyweights, key money managers have jumped into AEP Industries (NASDAQ:AEPI) headfirst. Magnetar Capital assembled the largest position in AEP Industries (NASDAQ:AEPI). Magnetar Capital had $19.1 million invested in the company at the end of the quarter. Marshall Wace LLP also initiated a $2.4 million position during the quarter. The other funds with new positions in the stock are Ben Levine, Andrew Manuel and Stefan Renold’s LMR Partners, James Dondero’s Highland Capital Management, and Joel Greenblatt’s Gotham Asset Management.

Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as AEP Industries (NASDAQ:AEPI) but similarly valued. These stocks are Tsakos Energy Navigation Ltd. (NYSE:TNP), Western Asst High Incm Opprtnty Fnd Inc. (NYSE:HIO), Winmark Corporation (NASDAQ:WINA), and Blue Hills Bancorp Inc (NASDAQ:BHBK). This group of stocks’ market valuations resemble AEPI’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
TNP 10 34924 -5
HIO 4 7992 -1
WINA 3 62096 0
BHBK 14 48076 -2

As you can see these stocks had an average of 8 hedge funds with bullish positions and the average amount invested in these stocks was $38 million. That figure was $142 million in AEPI’s case. Blue Hills Bancorp Inc (NASDAQ:BHBK) is the most popular stock in this table. On the other hand Winmark Corporation (NASDAQ:WINA) is the least popular one with only 3 bullish hedge fund positions. AEP Industries (NASDAQ:AEPI) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. In this regard BHBK might be a better candidate to consider taking a long position in.

Disclosure: None